Depreciation Calculator

This works out how an asset's cost is written off across its useful life, using any of the four common methods, with an option for assets bought partway through a year. The schedule underneath shows the book value, the charge, and the accumulated total for every period.

What depreciation is

In plain terms, depreciation is the loss of value in something over time through wear, age, or obsolescence. A machine that turns out fewer widgets this year than last has depreciated. So has a car after a collision or a failing transmission.

In accounting the word means something more specific: spreading the cost of an asset across the period it is useful. When a business buys a large piece of equipment, recording the whole cost in one month would distort that month's income statement badly and make the year look far worse than the business performed. Depreciation smooths that by charging a portion each period instead. In the United States, depreciation expense is tax-deductible, which is a second reason businesses track it carefully.

Two points follow that people often miss. Depreciation is a non-cash expense: no money leaves the business when the charge is recorded, since the cash went out when the asset was bought. And book value is not market value. An asset fully depreciated on paper can still be worth a great deal and still be in daily use.

Choosing a method

There are several ways to distribute the same total across the same life. This matters less than it appears, because the total depreciation is identical whichever you choose; only the timing changes. What differs is which years carry the expense.

That timing has consequences worth understanding. Accelerated methods, meaning declining balance and sum of the years' digits, push more expense into the early years, which lowers reported profit early and raises it later. Anyone reading the accounts, or judging cash flow from them, should know which method produced the numbers before comparing two companies.

Straight line

The simplest and most widely used method, spreading the cost evenly across the life:

Annual depreciation = (cost − salvage value) ÷ useful life

On the defaults, an $11,000 asset with a $1,000 salvage value over five years depreciates $2,000 a year, taking the book value down in equal steps to the $1,000 salvage. Use it when an asset delivers roughly the same value each year, which covers most buildings, furniture, and general equipment.

Declining balance

Some assets lose most of their value early, and the rate of loss slows as they age. For those, declining balance tracks book value more honestly than a straight line does. Each year's charge is:

Depreciation = book value × depreciation rate

Because the charge is calculated on a shrinking book value, the amounts fall each year on their own. The most common variant is double declining balance, which uses a rate of twice the straight-line rate, so the factor field is set to 2. On the defaults that is 40% a year: $4,400 in year one, $2,640 in year two, $1,584 in year three, against a flat $2,000 under straight line.

One quirk to know. Salvage value is not subtracted before applying the rate, unlike the other methods. Instead, depreciation simply stops once book value reaches the salvage figure, which is why the final year's charge is often adjusted to land exactly on it.

Sum of the years' digits

Another accelerated method, gentler than double declining balance. Add the digits of the years in the asset's life, so a five-year asset gives 5 + 4 + 3 + 2 + 1 = 15, then charge that many fifteenths in reverse order: five-fifteenths in year one, four in year two, and so on.

On the defaults that is $3,333, $2,667, $2,000, $1,333, then $667. It suits assets that genuinely produce more early on and slow with age, and it front-loads less aggressively than declining balance, which some accountants prefer for that reason.

Units of production

The other three methods tie depreciation to time. This one ties it to use, which is more accurate for assets whose wear depends on output rather than age:

Depreciation = (cost − salvage) × units this period ÷ total units expected

A press expected to produce 100,000 units over its life, costing $11,000 with $1,000 salvage, depreciates 10 cents per unit. Produce 20,000 units in a year and the charge is $2,000; produce 5,000 in a slow year and it is $500. A machine sitting idle depreciates nothing, which is the whole point and is exactly right for equipment whose life is measured in cycles, hours, or miles rather than calendar years.

Partial year depreciation

Assets are rarely bought on the first day of a financial year, which complicates the arithmetic. Different accounting rules handle this differently. The approach used here is partial year depreciation: the charge is calculated from the point the asset actually enters service, so a purchase six months in earns half a year's charge in year one and the remainder spills into an extra year at the end.

On the defaults with six months of service, the straight-line schedule becomes $1,000, then $2,000 for four years, then a final $1,000 in a sixth year. The total is unchanged at $10,000; only the distribution moves. Set the option to Yes and enter the months in service to use it.

Other conventions exist and are common in practice. The half-year convention treats every asset as though it entered service at mid-year regardless of the actual date, and the mid-month and mid-quarter conventions do something similar over shorter windows. U.S. tax depreciation relies on these rather than exact dates.

Salvage value

Salvage value, also called residual or scrap value, is what an asset is expected to be worth at the end of its useful life, whether sold whole, sold for parts, or scrapped. Subtracting it from cost gives the depreciable amount, which is what actually gets written off. An asset with no expected salvage value depreciates its entire cost.

It is an estimate, and estimates move. If a revision is needed partway through an asset's life, accounting treats it as a change in estimate applied going forward rather than a restatement of past years. Setting salvage unrealistically high understates expense and flatters profit, which is one reason auditors look at it.

Book depreciation against tax depreciation

Worth being clear about, because this calculator does one and not the other. Everything above is book depreciation, the figure that appears in financial statements and is meant to reflect how an asset is genuinely consumed.

U.S. tax depreciation follows a separate system, the Modified Accelerated Cost Recovery System, which assigns each asset class a prescribed recovery period and method rather than letting you estimate a useful life. Businesses routinely keep both sets of numbers, which is where deferred tax balances come from. Two provisions also let businesses deduct far more upfront than any schedule here: Section 179 expensing and bonus depreciation, both of which can write off a qualifying asset's cost immediately rather than over years. Use this calculator for book figures and modelling, and follow IRS rules or a tax professional for a return.

Reading the schedule

Compare the same asset across methods and the shape of the difference is clear immediately. Straight line charges $2,000 flat; double declining charges $4,400 then falls away; sum of the years' digits sits between them. All three land at the same $1,000 salvage, and all three write off the same $10,000.

The book value chart is where the choice becomes visible: a straight diagonal for straight line, a steep early drop flattening out for the accelerated methods, and a dashed line marking where depreciation stops at salvage. If you are modelling an asset purchase, run it both ways and see which better matches how the thing will actually be used. For the asset-purchase side of the decision, our Auto Loan Calculator and Business Loan Calculator cover the financing.